BC surprises and cuts interest rate by 1 percent
O Estado de S. Paulo - 01/22/2009
In the most aggressive cut in the interest rate of the last five years, the Monetary Policy Committee (Copom) of the Central Bank (BC) reduced the basic rate of the economy (Selic) by 1 percent, to 12.75% a year. The last time the BC reduced the Selic so much was in December 2003. The decision surprised most of the analysts, since the majority of the market bet on a cut of 0.75 percent. In spite of that, Brazil has kept the leadership in the world ranking of real interest (which discounts the inflation foreseen for the 12 subsequent months), with a rate of 7.6% a year. Hungary is second, with 5.8% and, Argentina third, with 5.1%. In an announcement made after the decision, the directors of the BC affirmed that "the committee is beginning a process to bring flexibility to the monetary policy, immediately promoting a relevant part of the movement of the basic interest rate". According to the text, the cut of 1 percentage will not "harm meeting the inflation goal". In the meeting, five directors voted for the cut of one percent, and three of them voted for a more conservative decision, with a reduction of 0.75 percent.